Warmer Weather & Cooler Diplomacy – Oil Rally Fades

Oil markets are sinking lower today, breaking from the sharp rally experienced over the past few days. Of course, warmer weather in Texas will allow oil production and refining to eventually return to normal. Crude production will resume sooner than refining, which will send crude prices lower and propel crack spreads higher. Gulf Coast refiners are expected to take a week or more before returning to normal operations. Some fuel pipelines are also offline, limiting supplies in some Texas markets.

Yesterday, President Biden announced that the US would be willing to join other nations in beginning negotiations with Iran to ease sanctions and return Iran to nuclear compliance.  So far, Iran has not indicated whether they will re-engage. The US and Iran have been at an impasse – the US expects Iran to show nuclear compliance before lifting sanctions, and Iran expects sanctions to be lifted before they comply. At stake for oil traders are nearly two million barrels per day of Iranian supply, which could flood markets if allowed back into the global supply pool. Iran has a presidential election just a few months away, so it’s unclear whether political leaders will pursue a major economic win or use the deal to stoke domestic nationalist sentiments.

The EIA’s inventory report, released a day delayed due to President’s Day, showed resoundingly bullish numbers, with crude and diesel both exceeding expected draws (crude by nearly 3x) and gasoline posting a smaller-than-expected build. Gasoline demand was up half a million barrels per day last week, adding strength to the market. Refiners also upped their utilization marginally to 83.1%. Across the board, the data reflected solid market performance and stable recovery. For the next few weeks, that data will be topsy turvy due to weather-related crude shutdowns, refinery closures, and displaced fuel demand.

This morning, crude oils is trading lower, while fuel prices continues to rise. WTI crude is trading at $60.21, down 31 cents (-0.5%) from Thursday’s closing price.

Fuel prices are seeing gains this morning, as refineries experience longer start times than crude producers. Diesel is trading at $1.8427, up 0.6 cents (+0.3%) from Thursday. Gasoline is seeing heftier gains, trading up 4.1 cents (+2.3%) to $1.8350.